Johnson v. Branch Banking and Trust Co.

313 S.W.3d 557, 2010 Ky. LEXIS 152, 2010 WL 2470849

• Court: Kentucky Supreme Court
• Decided: June 17, 2010
• Docket: 2009-SC-000319-CL
• Status: Published

Opinions

Opinion of the Court by

Justice VENTERS.

Pursuant to CR 76.37(1), this Court granted the certification request of the Sixth Circuit Court of Appeals to answer the following question of Kentucky law:

In order to perfect a security interest on a motor vehicle in Kentucky, does the KRS require physical notation on the actual certificate of title as ultimately issued by the county clerk, or is perfection accomplished as and when the required paperwork and fee are submitted to the county clerk? In other words, does K.R.S. (sic) 186A.195(5), like § 186A.190, define the acts necessary for perfecting a security interest in a motor vehicle, or is § 186A.195(5) designed to operate only as a timing provision for purposes of determining priority among creditors?

For the reasons stated below, we conclude that under Kentucky law, final perfection of a vehicle lien does not occur until physical notation is made on the title pursuant to KRS 186A.190, and, accordingly, perfection is not accomplished as and when the required paperwork and fee are submitted to the county clerk. KRS 186A.195(5), on the other hand, while it does address initiation of the perfection process, is designed primarily as a timing mechanism for establishing priority among creditors. Compliance alone with the acts set forth therein does not accomplish perfection.

FACTUAL AND PROCEDURAL BACKGROUND

On February 8, 2005, Michael W. Johnson purchased and took possession of a 2005 Dodge Ram pickup truck from Jeep & Suzuki Auto World of Big Stone Gap, Virginia. To finance this purchase Johnson executed an installment sales contract and security agreement, which was assigned to Branch Banking and Trust Company (BB & T). Auto World mailed a title lien statement, application for certificate of title, and requisite fees by certified mail to the Letcher County Clerk’s office, which was received on February 22, 2005. For unknown reasons, the clerk’s office did not stamp the documents as received or upload the data into the Automated Vehicle Identification System (AVIS) database for re-cordation until March 7, 2005. The Commonwealth of Kentucky Transportation Cabinet issued a certificate of title for the truck on March 25, 2005. The title notates March 7, 2005, as the filing date for BB & T’s lien.

On May 11, 2005, Johnson filed a Chapter 7 bankruptcy petition in the United States Bankruptcy Court for the Eastern District of Kentucky, Pikeville Division. Subsequently, Robin Browning Brock, as Trustee in Johnson’s bankruptcy proceeding, initiated an adversary case in the Bankruptcy Court seeking to avoid BB & T’s lien on the pickup truck as being a preferential transfer as defined under 11 U.S.C. § 547(b). BB & T responded that its lien fell within the safe-harbor exception to a preferential transfer claim as contained in 11 U.S.C. § 547(c)(8), which protects a lien perfected within twenty days of the debtor taking possession of the property.

The Bankruptcy Court found in favor of BB & T, but the United States Bankruptcy Appellate Panel for the Sixth Circuit reversed. See In re Johnson, 380 B.R. 455 (6th Cir. BAP 2007). Appeal was then taken by BB & T to the Sixth Circuit Court of Appeals. In light of the conflicting statutory provisions addressing perfection of a vehicle lien contained in KRS Chapter 186A, the Sixth Circuit certified the question of law, as stated above, to this Court.

DISCUSSION

Restated, the question we are asked to address is: “when does a vehicle lien become perfected under the provisions of KRS Chapter 186A?”

KRS Chapter 186A does not contain a definition for “perfection.”¹ Nor does KRS Chapter 355, which codifies the Commonwealth’s version of the Uniform Commercial Code. See KRS 355.9-102 (definitions relating to secured transactions); KRS 355.1-201 (general definitions). Where no specific definition is provided for terms contained in a statute, Kentucky law instructs that “words of a statute shall be construed according to their common and approved usage.... In addition, the courts have a duty to accord statutory language its literal meaning unless to do so would lead to an absurd or wholly unreasonable result.” Holbrook v. Kentucky Unemployment Ins. Com’n, 290 S.W.3d 81, 86 (Ky.App.2009) (quoting Kentucky Unemployment Ins. Com’n v. Jones, 809 S.W.2d 715, 716 (Ky.App.1991)); KRS 446.080(4).

The noun “perfection” is defined as “[vjalidation of a security interest as against other creditors, us[ually] by filing a statement with some public office or by taking possession of the collateral.” Black’s Law Dictionary 1173 (8th ed.2004). The verb “to perfect” is defined as “[t]o take all legal steps needed to complete, secure, or record (a claim, right, or interest); to provide necessary public notice in final conformity -with the law.” Id.

As further discussed below, KRS 186A.190 and KRS 186A.195(5) contain what may reasonably be construed as contradictory language concerning when a vehicle lien is perfected. In light of the conflicting statutory provisions, our duty is to construe the statutes so as to ascertain and give effect to the intent of the General Assembly. In determining legislative intent, we must refer to the language of the statute and are not at liberty to add or subtract from the legislative enactment or interpret it at variance from the language used. Stogner v. Commonwealth, 35 S.W.3d 831, 834 (Ky.App.2000). “When the words of a statute ‘are clear and unambiguous and express legislative intent, there is no room for construction or interpretation and the statute must be given effect as written.’ ” White v. Check Holders, Inc., 996 S.W.2d 496, 497 (Ky.1999) (quoting McCracken County Fiscal Court v. Graves, 885 S.W.2d 307, 309 (Ky.1994)).

With the foregoing principles in mind, we now turn to the language of KRS 186A.190 and KRS 186A.195(5). We first consider KRS 186A.190. KRS 186A.190 provides, in relevant part, as follows:

(1) Except as provided in subsection (4) of this section and in KRS 355.9-311(4), the perfection and discharge of a security interest in any property for which has been issued a Kentucky certificate of title shall be by notation on the certificate of title. The notation of the security interest on the certificate of title shall be in accordance with this chapter and shall remain effective from the date on which the security interest is noted on the certificate of title for a period of seven (7) years....

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(2) ... the notation of security interests relating to property required to be titled in Kentucky through the county clerk shall be done in the office of the county clerk of the county in which the debtor resides....

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Notwithstanding the existence of any filed financing statement under the provisions of KRS Chapter 355 relating to any property registered or titled in Kentucky, the sole means of perfecting and discharging a security interest in property for which a certificate of title is required by this chapter is by notation on the property’s certificate of title under the provisions of this chapter.... In other respects the security interest is governed by the provisions of KRS Chapter 355.

(emphasis added).

The plain language of KRS 186A.190 unambiguously establishes that the “sole means” of perfecting a security interest in a vehicle in Kentucky is by notation of the lien on the vehicle’s certificate of title. Constrained by the obligation to interpret the language as written, we conclude that perfection does not occur until the lien is noted on the title certificate. If notation on the certificate of title is the sole means of perfection, it follows that the tendering of fees and submission of paperwork under the procedures of KRS 186A.195(5) do not alone accomplish perfection.

Our interpretation of KRS 186A.190 is strengthened because it harmonizes with the language of KRS 186A.195(5). KRS 186A.195(5), provides as follows:

The security interest noted on the certificate of title shall be deemed perfected at the time the security interest attaches (KRS 355.9-203) if the secured party tenders the required fees and submits a properly completed title lien statement and application for first title ... to the appropriate county clerk within twenty (20) days of attachment. Otherwise, the security interest shall be deemed perfected at the time that such fees are tendered and such documents are submitted to the appropriate county clerk,

The interpretation of the KRS 186A.195(5) urged upon us by BB & T (that KRS 186A.195A provides the time of perfection) fails to give effect to the statutory language limiting its effect to “[t]he security interest noted on the certificate of title[.]”

Under the language contained in the first sentence of KRS 186A.195(5), it is the security interest noted on the certificate of title that is deemed perfected as of the date the security interest attached² if the required paperwork and fees were filed within twenty days of attachment. By the statute’s plain language, this requires that there be notation on the title before the retroactivity provisions become operative. As such, perfection cannot be said to occur until notation, though when notation does occur, the perfection may then be deemed to have occurred at an earlier date.³ In this vein, if the title is never issued, or if the title is erroneously issued without notation, perfection does not occur, which is a further reason why our interpretation is compelled.

It should be noted that our construction of KRS 186A.190 and KRS 186A.195(5) produces a result consistent with prior law addressing the perfection of a security interest in a vehicle. See General Motors Acceptance Corp. v. Hodge, 485 S.W.2d 894 (Ky.1972) (Failure of county court clerk to note automobile finance company’s lien on registration receipt issued to person who sold automobile to defendant rendered the lien unenforceable against defendant who purchased the automobile without notice of the hen); Kentucky Finance Co. v. Spradlin, 717 S.W.2d 843 (Ky.App.1986) (Secured creditor who relied upon debtor’s certificate of title, without knowledge debt- or had forged county clerk’s name in order to deceive creditor as to existence of prior hen, was entitled to rely upon certificate for perfection and priority). Moreover, our interpretation is consistent with the result previously reached by the Court of Appeals under current law in Hiers v. Bank One, 946 S.W.2d 196, 198 (Ky.App.1996) (KRS 186A.190(2) and KRS 355.9-302(3) clearly and unambiguously provide that, as to any property for which a certificate of title is required by KRS Chapter 186A, a security interest in that property may be perfected or discharged only by a notation in that vein on the certificate of title.)

In summary, under Kentucky law, perfection of a vehicle hen does not occur until physical notation is made on the title pursuant to KRS 186A.190, and, accordingly, perfection is not accomphshed as and when the required paperwork and fee are submitted to the county clerk. KRS 186A.195(5), while it does address initiation of the perfection process, is designed primarily as a timing mechanism for establishing priority among creditors under which perfection may be deemed to have occurred prior to notation on the title.

The law is hereby certified to the Sixth Circuit Court of Appeals.

MINTON, C.J., ABRAMSON, SCHRODER and SCOTT, JJ., concur. NOBLE, J., dissents by separate opinion in which CUNNINGHAM, J., joins.

1 . While we are directed by the parties to the definition of "perfection" as relevant to federal bankruptcy proceedings, we are asked to answer the certified question under state law — not to answer the question by reference to the Bankruptcy Code. We accordingly do not rely upon the Code’s specialized definition of perfection.

2 . "A security interest attaches to collateral when it becomes enforceable against the debt- or with respect to the collateral....” KRS 355.9-203(1).

3 . Similarly, while the second sentence of KRS 186A. 195(5) refers simply to "the security interest,” in context, it must, like the first sentence, be read to mean "the security interest noted on the certificate of title.” Thus, for filings with the clerk more than twenty days after attachment, as previously explained, perfection of the lien does not occur until title notation, at which time perfection would be deemed retroactive to the time of the submission of the paperwork and tendering of fees with the county court clerk.